The above was addressed by the Employment Appeal Tribunal (EAT) in the case of Econ Engineering Ltd v. Dixon and others [2020] UKEAT/285/19.
Holiday Pay
Although each case turns on its own facts, recent case law has favoured the inclusion of overtime, commission, allowances and regularly paid bonuses as part of holiday pay. The question was, ‘would this extend to profitability bonus?’
Econ were in the business of manufacturing and hiring out winter road maintenance vehicles and had several employees working in various roles within production where they were paid on an hourly rate basis per week.
As part of the working arrangement these employees also received shift allowances, pay for voluntary overtime and a profitability bonus paid monthly in arrears calculated as a variable uplift on the hourly rate of pay. The profitability bonus was not dependent on the employees’ performance, but rather on the performance of the business overall.
Econ maintained their stance that the profitability bonus was not required to be included in the calculation of the employees’ holiday pay, but the employees disagreed and thus brought unlawful deduction of wages claims in the Employment Tribunal (ET).
The ET held that the profitability bonus should be included in the calculation of their pay for annual leave under the Working Time Regulations 1998.
Employment Rights Act 1996
The matter then went to appeal to (EAT) who considered the wording within section 221(2) of the Employment Rights Act (ERA) that requires the inclusion of sums which are “payable by the employer under the contract of employment in force on the calculation date if the employee works throughout his normal working hours in a week.” The EAT decided that a week’s pay under the section required a fixed sum payable for working hours in any week, and the profitability bonus was contingent on the business achieving profitability targets and the sum was variable based upon the success of the business thus could not be a payment which arose simply because normal hours worked.
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